Nokia (NOK)
Technology is constantly evolving and as a result some companies have to reinvent their products in order to include new innovations. Some companies choose to improve upon existing products while others elect to create new ones. In some cases, reinvention or creation is not always the best option. Sometimes it’s easier for the company to stop producing a certain product or sell it to another company. Nokia has chosen to do the latter with its wireless modem business. The technology giant announced that it has sold its wireless modem business to chipmaker Renesas in a new joint venture for about $200 million. What are the details of the deal between Nokia and Renesas? Why has Nokia decided to unload a business that was once very profitable?
Daily Chart
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
Stock Analysis
Nokia is receiving around $200 million as part of the deal with Renesas. In addition to this, Nokia will transfer around 1,000 R&D employees, the majority of them located across Finland, India, UK and Denmark, to the Japanese entity. Subject to regulatory approval, the deal is expected to attain completion during the fourth quarter of 2010. Renesas Electronics, which was formed in April 2010 following a merger between NEC Electronics and Renesas Technology, has licensed the Nokia modem since 2009. The Finnish firm will also transfer certain patents to Renesas.
Wireless modems are the essential components that enable any mobile device to connect to a wireless network. Renesas will acquire Nokia’s wireless modem technologies for GSM, high-speed packet access (HSPA), and Long Term Evolution (LTE). This technology is still very relevant, so the announcement that Nokia was selling this unit came as a surprise to some. Nokia’s decision was based less on the demand for this technology and more on the competition that is currently flooding the market. The increase in competition has forced prices down over the last three years, which has started cutting into Nokia’s profit.
The deal will prove to be mutually beneficial to both parties involved. Nokia will be able to improve its cost base radically by outsourcing an element of its phones that previously delivered a competitive edge, but has become increasingly commoditized. On the other hand, Renesas will be able to fill in a gap a gap in its wireless portfolio and boost its chances of being a major player in the 3G/4G cellphone market. Both companies have agreed to work together to on the development of future radio technologies. In particular, they will work on modem technologies for the HSPA+ (Evolved High-Speed Packet Access) and LTE standards. Kai Oistamo, Executive Vice President at Nokia, said “The alliance enables us to continue to focus on our own core businesses, connecting people to what matters to them with our mobile products and solutions.”
Renesas definitely seems better equipped to monetize this technology effectively. It will be interesting to see how the deal impacts both companies as they come together to develop new technologies. Nokia can now focus internally on developing a stronger smartphone platform, which may lead to an increase in device sales.
Other Stocks in the News
- Walgreen June Sales Climb 2% – Sales at one of Walgreen (WAG: Charts, News, Offers) drug store chains increased 8.4% for the month of June.
- Toyota Starts World Recall for Engine Fix – Toyota (TM: Charts, News, Offers) started a global recall over engine defects in its Lexus and Crown models.
- Bebe to close PH8 Division – Bebe Stores (BEBE: Charts, News, Offers) plans to discontinue operations of its unprofitable PH8 division, the company’s sportswear collection.
